Far East Hospitality Trust - CIMB Research 2015-12-09: Time to check out

Far East Hospitality Trust - CIMB Research 2015-12-09: Time to check out FAR EAST HOSPITALITY TRUST Q5T.SI 

Far East Hospitality Trust - Time to check out 

  • Softer macro conditions, strong S$ and haze led to decline in NPI. 
  • Lower room rents prop up hotel occupancy. 
  • Service residences comparatively worse off with fall in corporate demand. 
  • We project 15m visitors for 2015 vs. 15.1m in 2014. 
  • Watch the supply bump in 4Q; maintain Hold. 


■ Softer macro conditions, strong S$ and haze led to decline in NPI 

  • On the back of softer macro conditions, a strong S$ and the outbreak of the haze, FEHT reported a 6% yoy dip in NPI for 9M15 (S$77.4m). On a qoq basis, a seasonal uptick in tourist arrivals vs. 2Q and lower ADRs arrested the quarterly decline while NPI for 3Q15 grew 3% qoq to S$26.9m. 

■ Lower room rents prop up hotel occupancy 

  • On the back of sluggish visitor arrivals, FEHT charged a competitive room rent of S$171/night for 9M15 (-9% yoy). In turn, this helped to prop up hotel occupancy, which averaged 85.5% for 9M15 (+1.9% pts). 
  • As a result, 9M15 RevPAR slid 6.3% yoy to S$146. For Jul-Aug 2015, STB estimates that RevPAR across all hotel segments decreased by 2.1% yoy. 

■ Service residences comparatively worse off with fall in corporate demand 

  • Affected by ongoing renovation at Regency House (completed by 1Q16) and a fall in corporate demand, service residences were comparatively worse off. Average occupancy for 9M15 dropped 0.5% pts yoy to 88.4% while FEHT lowered ADR by 6.8% yoy to S$234 to attract group demand. RevPAR correspondingly fell by 7.3% yoy to S$207. FEHT shared that contributions from FIs fell to 17.9% of service residences’ revenue for 3Q15 (3Q14: 27.6%) while oil & gas dropped to 11.9% (3Q14: 28.4%). 

■ We project 15m visitors for 2015 (2014: 15.1m) 

  • In 8M15, visitor arrivals dipped 0.6% yoy to 10.2m. We are forecasting 15m visitors for 2015 vs. 15.1m in 2014. 
  • Given the currency weakness, STB reported that Indonesian visitors dropped by 11.2% yoy while Australian visitors decreased by 6.5%. 
  • The shortfall was made up by Chinese visitors, which rose by 19.3% yoy. The trend is in line with what FEHT reported, as it saw contributions from North Asia increase by 2.1% pts in 3Q15 while contributions from Southeast Asia fell by 2.8% pts. 

■ Watch the supply bump in 4Q15; maintain Hold 

  • With South Beach (upscale segment) and Hotel Boss (mid-tier) expected to open in 4Q15, we believe that FEHT may have to lower room rates further to maintain occupancies and market share. 
  • More importantly, South Beach and Hotel Boss account for around half of the upcoming 4,361 rooms for 2015. Hence, we maintain our Hold recommendation and keep our DDM-based target price S$0.70 unchanged. 



LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-12-09
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.70 Same 0.70


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